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Bank of Canada Governor Mark Carney has tough job as next Bank of England chief

Bank of Canada Governor Mark Carney was unexpectedly appointed as the next head of the Bank of England, succeeding Mervyn King.

Bank of Canada Governor Mark Carney laughs during a news conference in Ottawa November 26, 2012. Carney will take over the reins as Governor of the Bank of England next year, British finance minister George Osborne told parliament on Monday, announcing a surprise choice to replace outgoing Bank of England Governor Mervyn King. (CHRIS WATTIE / REUTERS)

OTTAWA—Mark Carney, the whiz kid from the town of Fort Smith (pop. 2,496) in the Northwest Territories, will soon be the most prominent unelected official in the halls of British power.

News that Prime Minister David Cameron was thrusting the health of his country’s struggling economy into the hands of a foreigner shocked experts and bookies alike in London.

And it left Britain scrambling to find out who the 47-year-old Canadian central banker is.

The august Financial Times noted that Carney met his wife Diana at England’s Oxford University, speaks fluent French, was the “reserve goalkeeper of the ice hockey team” at Harvard and the temperature in Fort Smith on Monday afternoon was -21C.

Surprised British MPs reportedly cheered when Chancellor of the Exchequer George Osborne noted that Carney, while a Canadian, is “a subject of her majesty the Queen.”

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Britons also seemed agog over the salary that Carney is reportedly commanding — nearly $1 million a year. That’s about double what he makes at Canada’s central bank and considerably more than outgoing Bank of England Governor Sir Mervyn King makes (including pension, about $826,000).

For Carney, a high flyer more at home than ever on the international stage, it was an offer he couldn’t refuse.

“This is a major challenge, a major opportunity,” he told reporters.

Now five years into a seven-year term as head of Canada’s central bank, Carney said he would resign and take up his new position in London in mid-2013.

As recently as August, Carney was denying he had any interest in the job. But reports in London say he was the front-runner from the beginning and that British officials shortened the term of office to five years from eight years and raised the salary to get their man.

The meeting that sealed the deal was a G20 finance ministers’ session in Mexico City a day before the U.S. election, according to the Financial Times.

Carney will be the first foreigner to head the tradition-steeped, 318-year-old Bank of England. But Carney noted he is “not without ties” to the U.K. His wife Diana is British-born and his four daughters are dual Canadian-British citizens. “I lived there for a decade. I know a lot of people in the City,” he added, referring to London’s financial district. “Obviously, I think I can play a constructive role as the governor.”

“It’s bittersweet,” a gloomy-looking Finance Minister Jim Flaherty said in a hastily-called news conference. “It is our loss, of course it is. Mark has been a superb governor of the bank.”

Flaherty hand-picked Carney as central banker in 2008.

London is one of the world’s most important financial centres and is a key focus of the Group of 20’s Financial Stability Board, which Carney chairs. The international regulatory body is trying to clamp down on the flagrant risk-taking and investment short cuts on Wall Street and elsewhere that plunged the world into crisis four years ago.

Carney acknowledged the hurdles ahead in Britain, which has been mired in economic uncertainty ever since the recession spread from the U.S. to Europe in 2008. “It is very important for the global economy that the U.K. does well, that it succeeds in this rebalancing of their economy, that the reform of the British financial system is completed,” he said.

“I was never going to be the governor of the Bank of Canada forever.”

TD Bank Chief Economist Craig Alexander said, “As an economist in Canada, I thought the Bank of Canada was the summit. Apparently Governor Carney is capable of setting new summits. I never thought I would have seen a Canadian nominated to the Financial Stability Board and I never thought I would have seen a Canadian appointed to run the Bank of England. I wonder what his next summit is.”

Carney, seen as the perfect outsider for a tough job, beat out Bank of England Deputy Governor Paul Tucker, who had been widely expected to become central bank governor, particularly after Carney said in August he wasn’t interested.

A triumphant Osborne called Carney “the outstanding central banker of his generation.

“He is quite simply the best, most experienced and most qualified person in the world to do the job,” the British chancellor stated Monday.

Carney has been one of the more high-profile figures to ever occupy the governor’s position at the Bank of Canada, a traditionally staid institution that for decades kept largely out of the headlines. The former Goldman Sachs investment banker has gone a long way to redefining that role, repeatedly warning consumers to ease up on their borrowing, saying he understands the frustration behind the Occupy Wall Street protests and arguing that in future shareholders and executives—rather than taxpayers — should bear the cost of financial meltdowns.

At times he has seemed like a man ready for new horizons, such as when he recently slammed corporate Canada for what he said was a failure to plow enough of their profits back into productive investments. Or when he appeared on television and commented on the outcome of the recent U.S. presidential election.

He was also widely touted as a possible contender for leader of the federal Liberals — a suggestion he repeatedly turned aside.

Carney’s time at the Bank of Canada largely coincided with the worst recession in 70 years. He broke new ground by keeping the bank’s trend-setting interest rates at historically low levels and by broadcasting his intention to keep them there to bolster the sputtering economy. And during the height of the 2008-09 financial crisis, the bank introduced several financial measures to help Canadian banks avoid a freeze-up of the lending activity that is the lifeblood of the economy. The central bank will select a replacement for Carney but the final decision lies with the Harper cabinet.

While Carney’s successor won’t be installed until next year, it is unlikely the new governor will stray far from the bank’s current attempt to keep interest rates as low as possible to spur economic expansion without setting off runaway inflation.

Foremost among those considered as possible successors to Carney is Tiff Macklem, the experienced senior deputy governor of the Bank of Canada. Other names that coming up are Don Drummond, a former senior official at Finance Canada and a well-known economist, and Julie Dickson, who as federal superintendent of financial institutions has worked closely with Carney and Flaherty in overseeing Canada’s banks. Christopher Ragan, an expert in monetary policy at McGill University who has served as an adviser to Flaherty as a visiting economist at the finance department, is another possibility.

In Britain, Carney will face an approval hearing at Parliament’s treasury committee before taking over his new job on July 1, 2013.

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